10 Ways to Saving for a Down Payment on a Home
Saving up to get your own home is not as easy as everyone thinks. Some of those who can truly afford say it’s a piece of cake. But for most families, it’s always been up and down over the years trying to save for a home. Most families get into a house by either inheriting the money or the house. For those that have to save for the downpayment on a home, it can be quite trying, especially if you still have babies that need your time, money, and attention. Others have even used their home savings as an emergency stash plenty of times. So how does a family save for home on a small income?
For most of us, we’ve had money automatically taken out of our paychecks every month and put into any savings account. It usually generates about a 4.5% interest rate. But the biggest weakness is that it can take years and years before we can see real results in savings. I’m going to take this process a further in order to save up this big chunk of money.
A time frame in which you would like to have the money accumulated. If you get distracted easily, you’re shooting for 5 years, tops.
2) Get the entire family involved, even the kids.
Sit down and motivate everyone about the idea of having your own home. What does each one want? Their own bedroom, backyard, dishwasher, garage, etc. Write down all the features that each one dreams of having.
3) Get into thinking
Think about and discuss what area you want to live and the price ranges you are looking to get into.
4) Write out a specific goal
Once the entire family has agreed on what they want in a home, the area, price range, and time frame, write out a specific goal of that. For example: “We are going to save for a down payment on a 3 bedroom, 2 bathroom single family home with a 2 car garage in the Los Angeles area by January 2018.” Type it up nice and big and even draw a picture of the type of home. Post this goal on your fridge or any area that the family goes by everyday.
5) Come up with ways to achieve the goal
Think about how you are going to achieve this goal and start writing down ideas. Become frugal, always be thinking of ways to do things cheaper or even for free, but make sure you don’t sacrifice quality over quantity though. For example, if you’re expecting a baby, do not settle for cheap-made stuff as this may end up you buying the same thing over and over again. Read some guide before you buy crib mattress or breast pumps or car seats. Once you’ve read over comparisons, decide which one will suit your needs AND your budget. The aim here is to lower your living expenses as much as possible to save the maximum without lowering your standards as well.
Also, when you get a raise or bonus, put at least half if not all towards the house savings. Same goes with money gifts.
6) Set rewards for yourself along the way.
When lowering your living expenses, one of the first things to go can be expensive entertainment that kids where used to like amusement parks, Chuck E Cheese, and things like that. Each month when your savings goals are achieved award the whole family with cheaper entertainment. At the beginning of the month think about what your reward will be and shoot for it.
7) Take advantage of the tax return
Families with children usually get a big tax return in January-March. Take half that money and put it into your house savings every year.
8) Transferring into a savings account
Every year, you will be saving up your money by having it transferred into a savings account. Try to find the highest interest paying account you can find, most of these will be online. Add this money up with your tax return and put it all into a one year CD earning more then 5% interest. Make sure the CD is started right when you receive your tax return so that it becomes mature at that time the next year. You will continue adding your savings from the year past and your tax return money and opening up a new CD.
9) Get the most out of your interest
Essentially you are creating your downpayment with compound interest. The interest you earn will be doubling each year because you are adding such a big chunk of money to your CD each time. You will see the savings add up fast, which will in return motivate your family even more!
10) Give everyone a motivation
Share in the progress with the entire family along the way. Let everyone know you are 15% towards your goal and so on.
Lou Rutkevich is currently a writer and editor for a health magazine in Singapore. She is an open-minded free spirit, always ready for new adventures. Faith, family and finances are the core of her value system. She is a dream chaser and with her husband and best friend by her side, she plans to take over the world. Visit her blog https://www.junielou.com/